Archive for 2012

Today is part 4 in the ongoing series on Ownership Cost: Ownership cost: income, payments and house prices Ownership cost: interest rates and down payment requirements Ownership cost: property taxes, insurance, Mello Roos, and HOAs Ownership cost: taxes and opportunity costs Four Major Variables that Determine Market Price Over the last four days we looked at the four main variables that determine home price: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. Today we are looking at tax implications and opportunity costs because these number will give you a more accurate measure of the impact home ownership will have on the owner’s financial life. Taxes Owning real estate has two significant tax benefits: (1) favorable capital gains…[READ MORE]

Today is part 3 in the ongoing series on Ownership Cost: Ownership cost: income, payments and house prices Ownership cost: interest rates and down payment requirements Ownership cost: property taxes, insurance, Mello Roos, and HOAs Ownership cost: taxes and opportunity costs Four Major Variables that Determine Market Price Over the last two days we looked at the four main variables that determine home price: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. Today we are looking at some of the minor cost inputs that work by influencing the major ones; property taxes and Mello Roos taxes, HOAs, and insurance. PITI lenders have an acronym called PITI, which stands for principal, interest, taxes, and insurance.To that we can…[READ MORE]

Today is part 2 in the ongoing series on Ownership Cost: Ownership cost: income, payments and house prices Ownership cost: interest rates and down payment requirements Ownership cost: property taxes, insurance, Mello Roos, and HOAs Ownership cost: taxes and opportunity costs Four Major Variables that Determine Market Price Yesterday, we discussed the four variables that determine the purchase price of a property: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. Today we are looking at interest rates and down payment requirements. Interest Rates Interest rates go up, and interest rates go down. Interest rates are the yield on debt instruments. If investors lose their appetite for mortgage debt, prices of mortgage-backed securities goes down, payment yields go…[READ MORE]

I revisited my post on Rent Versus Own where I talked about the cost of ownership. Many of the questions people have about our Cost of Ownership analysis are related to the various cost inputs and how they impact values. Therefore, I want to take each of these costs and talk about them in more detail. In order to do this in a logical flow, I have broken this task into a series of four posts that will be debuting all this week. These posts are: Ownership cost: income, payments and house prices Ownership cost: interest rates and down payment requirements Ownership cost: property taxes, insurance, Mello Roos, and HOAs Ownership cost: taxes and opportunity costs Four Major Variables that…[READ MORE]

The need for shelter is basic, often closely followed by the desire for community. In the United States, this often translates into a desire to take on a very large mortgage to buy real estate. These basic human emotions drive much of the activity in real estate markets. Most people buy because it is the right time for them. Their career, age, family circumstances all come together to push people toward ownership at different times. Some are fortunate and buy at the bottom of the real estate cycle. Some are not so fortunate and buy at the peak. The most damaging aspect of our current system is the price volatility. It capriciously rewards some and destroys others. Home price volatility…[READ MORE]

Besides credit qualification barriers due to low FICO scores, there are two barriers to originating more loans and selling more houses to owner occupants: (1) insufficient down payment, and (2) increasing loan costs. The FHA still originates loans at 3.5% down, and the credit barriers are limited, despite realtor pleas and rhetoric to the contrary. However, since the FHA is losing a great deal of money and facing a bailout, they are continually raising their insurance fees as they become the replacement for subprime lending. These increasing costs are making houses less affordable and thereby reducing access to credit. As a result, many borrowers are opting for conventional mortgages with their higher down payment requirements. And since fewer potential buyers…[READ MORE]

The monthly housing market reports I publish each month became bullish late last year due to the relative undervaluation of properties at the time. I was still cautious due to weak demand, excessive shadow inventory, the uncertainty of the duration of the interest rate stimulus, and an overall skepticism of the lending cartel's ability to manage their liquidations. In 2012, the lending cartel managed to completely shut off the flow of foreclosures on the market, and with ever-declining interest rates, a small uptick in demand coupled with a dramatic reduction in supply caused the housing market to bottom. Even with the bottom in the rear-view mirror, I remained skeptical of the so-called housing recovery because the market headwinds remained, and…[READ MORE]

The Great Housing Bubble cultivated a gentility of entitlement, a sordid societal residue, a system of reliance, a conviction among people that they may possess anything they wish just because; deserving without earning; Grace. Divine acceptance is given; whereas, worldly possessions are earned -- a basic truth lost through possessory entitlement. Few construct and contribute to the greater good, and many expect easy money from lenders, Governments, housing and stock markets or free-money Ponzi Schemes. We are impaired by our lender's failure and our Government's response to the crisis our lenders created; a wound that lingers as a festering sore no bailout balm can remedy. The emotional fall from Grace has barely begun. The amend-pretend-extend dance will continue until lenders…[READ MORE]

Everyone active in the real estate market today laments the lack of available inventory. Orange County housing market prices are rising due to the restricted inventory. Banks are focus on loan modifications and short sales to resolve their prior bad loans. In the interim, delinquent mortgage squatters are enjoying their free ride. Earlier this year, the State of California passed the Homeowner Bill of Rights (Detailed review of the new changes to California foreclosure law). In the new law, banks are no longer allowed to pursue dual-track foreclosure processing. If a loanowner is seeking a loan modification, the process must be allowed to run its course -- gaming the system included -- before the bank and finally push out the committed…[READ MORE]

Do we really want to let Ponzis back into the housing market? There is a large group of people who've proven to be completely irresponsible with mortgage debt as evidenced by my daily debtor debacles. I wrote yesterday that Pent-up demand from boomerang buyers may not materialize, but isn't stopping the FHA from trying. I have no problem with peak buyers whose only mistake was poor timing from reentering the housing market, but do we really want to let the irresponsible Ponzis back in? And do we as taxpayers want to be on the hook when they resume their old habits? That's where the FHA is headed. It shouldn't be surprising that Ponzis want to own another cash cow. They…[READ MORE]

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